Calculate Tax Deductions on Provident Fund Money | EPF Tax Calculation

By | March 5, 2019

As per EPF act 1952, the employee will be beneficial at the time of their service retirement with some huge amount. The employer also contributes some percentage of an amount to the employee EPF account. And there is a deduction from employee salary every month. The deductions and contributing are as per the central government rules.

These deduction amount and employer contributing an amount to the employee EPF account will be deposited in the EPFO account and the finance ministry of India provides some rate of interest on these amount as per the rules. So, finally, the employee gets a huge amount at the time of their retirement time.

How means, the employee continues their services on an average of 35-37 years and monthly 12% deduction form their basic salary and employer also contributing to employee EPF account until the employee continues their service in that company and Government of India also offering the interest on it. (Presently interest rates on EPF account is 8.55%, this interest rates will be changed every year as per their strategies. By following this example, you will get an idea, how much of huge PF amount an employee can get at their retirement age.

Sample of Tax Deductions on EPF of an employee:

Assume, at age of 23 an employee A starts his job with 20000 INR of basic salary in Company ABC, and employee and employer both are contributing the 12% amount towards employee EPF account. But employer contributing 3.67% amount to employee EPF account and rest of the amount to an employee pension scheme. The process continues until the employee reaches the age 60(It’s the retirement age in India now).

For employee: 12% of 20000 INR is 2400 INR per month deduction. And for one year, it will be,

2400 * 12 = 28800 INR.

For employer: 3.67% of 20000 INR is 440. And for one year it will be around 5280.

The total amount will be 34,080. If we add the PF interest rates to it, then 34080+2913=36993 INR.

The above calculation for only one year. If an employee continues the service up to 60 years of age then, the final PF amount will be around of 13,68,741 INR. (This is the just assumption only)

So at last, a huge amount will be employee can expect. So, in some situations, if employee withdraws their PF amount there will be tax applicable.

Situations of an employee Provident Fund amount would be taxable:

If an employee unfortunately not continuing their services to any company or if he/she unemployed for a month, he/she can withdraw their provident fund amount up to 75% from their EPF account. And the remaining 25% of provident fund amount can be withdrawn after two months, still if he/she remains unemployed. The 10% tax will be applicable on that amount and need to fill Form 31.

If an employee withdraws the partial amount from their provident fund account due to any urgency and if the employee’s service is less than 5 years, then 10% TDS will be applicable on that withdrawal provident fund amount, in case if he/she submits the Form-15G/15H along with PAN. Unless the employee fails to submit the PAN, then TDS will be 34.608% applicable.

As per the latest guidelines and rules of the government, there is no TDS will be applicable on the provident fund amount at the employee retirement time. So, an employee can beneficial his/her full provident fund amount with zero tax deductions.

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